Software patents harm banks

7 February 2005

"Basel II is a round
of deliberations by central bankers from around the world, under the
auspices of the International Bank of Settlements in Basel, Switzerland,
aimed at producing uniformity in the way banks and banking regulators
approach risk management across national borders."
Mr Nout Wellink is the Chairman of the Board of Directors and President
of the International Bank Settlements.

Dear Mr. Wellink,

in our open letter to
the head of the Allianz insurance group, Mr. Diekmann, we explained how
software patents are likely to
become a massive cost and risk factor for all money and information
technology intensive businesses like insurance companies. The same holds
true for banks.

Software patents establish monopolies on abstract ideas which are
available to anyone, including those who do no software development but
do have legal departments. Like all larger software projects, all parts
of Basel II consist of a multitude of ideas, each of which may become
subject to a monopoly by anyone. If you for instance check the database
of the US Patent and Trademark Office (USPTO), you will already discover
180 patents
on software ideas concerning "credit risk" -- the central issue of
Basel II.

There is no compulsory licensing for any of these, the particular
patent holder gets to determine the terms on which they will grant or
deny use of the monopoly on each individual idea.

But the implementations of Basel II will naturally also depend upon a
multitude of standard components, such as file services, databases,
transfer protocols and more. Each of these is similarly subject to
software patents. Since the number of methods to secure computer
systems is limited, this may mean that Basel II will have to implement
its features on a known insecure basis.

Once Basel II becomes widely used, a dramatic increase in software
patent infringement lawsuits for this area is likely to occur on a
global basis. Any bank or any of its customers for Basel II based
software may become target of such legal action -- the risk is
incalculable and can bring about multi-billion Euro lawsuits.

Most banks are still unaware of this threat -- they have not realized
that software patents will affect them to such an extent. When
we were recently talking to a German bank, they were shocked when they
realized what software patents will mean to their business.

Software patents will dramatically reduce the innovation rate and
competitiveness of European economy in general, and to you they mean
introducing an incalculable risk that can generate huge damages.

That is why we ask you to protect your interests and take initiatives
against software patents -- directly and by supporting our work. Also,
should you have further questions, please do not hesitate to get in
touch.